Medicare not going broke as fast as once predicted

But retirement saving challenges remain

WASHINGTON — Florida's senior citizens and millions of baby boomers preparing for a long retirement can breathe just a little easier, but not much.

Medicare is not going broke quite as quickly as once feared, government trustees reported on Friday, while Social Security's finances are holding steady.

That's good news for the retirement haven of Florida, where one in five residents already depend on these programs — an economic lifeline that helps about 3.5 million in the state cover health care and month-to-month expenses. But younger generations, starting with baby boomers who are just plunging into retirement, have the most at stake.

Most financial planners contacted on Friday in South Florida said don't panic, Social Security and Medicare aren't going away. But plan on somewhat reduced benefits in future years, they advise. And if you're a higher-income recipient, plan on higher costs and taxes on benefits.

"People need to be optimistic, but still plan," said David Treece, an investment adviser in Miami Shores. "You can't take things on blind faith, especially health-care costs. People in their 50s and 60s need to think about their health-care situation, particularly for long-term care.

"Younger people don't even want to look at it because there's been so much negative news about Social Security running out of money. But in my opinion, this is a problem that gets solved. There may be a reduction in benefits. There will be tweaks. But I have a lot of positivity that the programs will continue."

Some planners are more pessimistic.

"In my opinion, the various calculations of various agencies to determine when, how and why Medicare or Social Security will run out of funds are so convoluted that these two programs should not be counted on when planning for one's retirement," said Connie Nadrowski, a financial planner in Longwood.

The annual report from Social Security and Medicare trustees on Friday offered grist for both points of view.

A slower increase in health-care spending has helped shore up financing for Medicare's hospital fund, extending the day of reckoning when it will run short of money until 2026, two years longer than had been projected in the 2012 report, the trustees said.

The trustees projected that Social Security will run short of money in 2033, the same as last year's estimate.

But both programs remain vulnerable, they acknowledged, headed for insolvency unless Congress takes action to bring in more tax revenue or reduce benefits over the next decade. Friday's report will revive a long-standing debate over how to fix the long-term finances of these programs.

Some trustees say the new Affordable Care Act has helped restrain health-care spending, which improves the financial health of Medicare. But U.S. Sen. Marco Rubio, R-Fla., and many other Republicans say "Obamacare" is a costly venture that threatens Medicare's solvency.

Rubio — as well as House Republicans — backs a plan to restructure Medicare into a voucher-like system to rein in costs, a move strongly opposed by President Barack Obama and fellow Democrats.

Obama, meanwhile, has shown a willingness to reduce annual cost-of-living adjustments for Social Security by using a more-restrained way of figuring inflation, called chained-CPI, that dampens cost-of-living increases by accounting for consumers' tendency to buy fewer goods –—or cheaper alternatives — when prices rise. U.S. Rep. Ted Deutch, D-Boca Raton, wants to move in the opposite direction by increasing COLAs to account for higher costs paid by senior citizens for medicine and health care.

Laura Walsh, a financial planner in Weston, advises clients to save a little extra to compensate for likely reductions in future Social Security or Medicare benefits.

"The challenge is that people are still afraid of investing in the stock market, and their savings aren't bringing in much interest," Walsh said. "So it's getting harder to save to make up for what may be an erosion of benefits."

Some investors are searching for another source of income in case Social Security tanks.

"That opens the door for more annuities and products of that nature that may be able to provide a similar steady, secure source of income," said Conrad Santiago, a financial adviser in Orlando.

The savings crunch already has prompted some people to delay retirement.

"Now people figure that they may live until they are 85, even 90. They are healthy enough to keep working. And they can't afford to stop working," said Edith Lederberg, 83, executive director of the Aging and Disability Resource Center of Broward County.

"I just don't like to see seniors frightened. I don't want the boomers afraid they aren't going to get benefits. And I don't want the younger generations to turn against the senior generation. My belief is that Social Security will continue to survive and flourish. Nobody wants it to go away."